City manager Manuel Pellegrini is under mounting pressure with the club facing another early Champions League exit and their Premier League title also slipping away.
Bayern Munich boss Guardiola had been on their short-list, but has now publicly insisted he is staying with the German giants and will honour his contract until 2016.
That leaves the way open for ex-Chelsea manager Ancelotti if City bring down the axe on Pellegrini in the event he finishes the season empty-handed.
Ancelotti has a get-out clause in his contract at the Bernabeu and Europan champions Real have yet to offer him an extension to his current deal, which expires next year.
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